More and more young families are being 'locked out' of the property market by soaring rents. Photograph: E M Welch/Rex Features

More than 1 million young people will be "locked out" of home ownership in eight years' time, making up a generation that is "increasingly marginalised" and renting due to the lack of houses, a study warns.

The Joseph Rowntree Foundation says that by 2020 the number of home owners under the age of 30 will fall from 2.4 million to 1.3 million, a drop of 46%. The foundation also predicts that by then 400,000 vulnerable young people could be "excluded completely", unable to afford either to rent or buy accommodation.

Signalling a widening intergenerational gap, the report warns that many young people who today might expect to get on to the housing ladder will in future find they cannot buy a home.

Instead the young of today either might have to rent property over their lifetime, or, well into their 30s, remain with their parents and try to save to buy a home.

This will come as a blow to many Britons who cling to the idea that the country is a "property-owning democracy". Despite the credit crunch and recession, a recent poll for the Council of Mortgage Lenders indicated 81% of British adults were hoping to be home owners in 10 years' time.

These expectations are unlikely to be fulfilled, the foundation says. It forecasts an extra 1.5 million 18-to-30-year-olds will be renting a home in 2020, while another half a million young people will "stay at home"; by 2020 the number living with "mum and dad" will be 3.7 million. .

"It means many young people's dreams of owning a home will never come true, while many more will have a much longer wait before they own their own property," says the foundation.

With an influx of young people hunting places to rent there are concerns that families and poorer households will be unable to compete.

Given that the numbers of renters is set to rise dramatically, the foundation suggests that the government intervenes in the market to ensure "more affordable rents", with tax breaks for landlords who offer secure tenancies. So far the Treasury has been unsympathetic to such ideas.

Kathleen Kelly, at the Joseph Rowntree Foundation, warned that without action, the 400,000 young people predicted to be living on the edge in 2020 could "turn a housing crisis into a homelessness disaster".

At the heart of the issue lies an "undersupply" of housing, a point emphasised on Tuesday by government data that showed the quantity of affordable homes under construction fell by 68% in a year – from 49,363 in 2010/11 to 15,698 in 2011/12. The government's target is for 170,000 new affordable homes by 2015. Jack Dromey, the shadow housing minister, said the predicament of young people arose from the government's austerity drive. "It's an absolute tragedy that 1 million young people could be locked out of home ownership by 2020. One of the biggest consequences of the housing crisis is the rise of 'generation rent' as young people face a squeeze on their wages, increasingly unaffordable rents and greater difficulty saving for a deposit."

He added: "As a growing number of young people lose hope of buying a home and come to live with mum and dad, or in the private rented sector, they will be asking what the government is doing to tackle the housing crisis. So too will their parents."

However, the government said it was investing £4.5bn in a building programme. The housing minister, Grant Shapps, is expected to announce proposals to stop "high earning" tenants from having a local authority-owned house, in an attempt, he will argue, to keep social homes for "those most in need".

Hammersmith & Fulham council, a Conservative-run borough in London, has proposed a move to prevent couples who earn more than £40,000 living in a council home.

Shapps said: "I am determined that we pull out all the stops to get Britain building and deliver the affordable homes this country needs, both to buy and to rent. That's why, despite the need to cut the record deficit we inherited, we're investing £4.5bn in a building programme set to exceed all original expectations and deliver up to 170,000 new affordable homes, on top of a further £1.3bn to get stalled developments back on track and to build the infrastructure we need to unlock sites for housing."